Gold’s short- and long-term outlook

The U.S. Comex gold futures (COMEX:GCZ13) rebounded 0.28% on Wednesday but plunged 1.90% on Thursday to $1,323.70. The silver futures fared even worse, tumbling 4.86% on Thursday. The Dollar Index (NYBOT:DXZ13) rose for five consecutive days and ended at 80.195 on Thursday, climbing 1.28% in that period. The S&P 500 Index declined 0.87% in the past two days after reaching an all-time high on Tuesday while the Euro Stoxx 50 Index was up 0.57%.

Central Bank Actions

As expected, the Fed kept the pace of the QE unchanged and preferred to see evidences that the progress made in the economy and labor market is sustainable before tapering. However, the market detects a slightly hawkish tone by the Fed, who has left open the possibility of tapering in December or January. As a result, the U.S. stocks and the gold prices got beaten down while the dollar surged. The U.S. latest weekly jobless claims decreased 10,000 to 340,000 compared to the expectation of 338,000. In Europe, the October inflation rate fell to an almost four-year low of 0.7% compared to an expected 1.1%, opening the door for the ECB to ease monetary policy further. The Bank of Japan also maintained its QE and will increase the monetary base by 60 to 70 trillion Yen a year.

Latest Research from the World Gold Council

While gold traders have squared their books for month-end and added to price volatility, a latest report from the World Gold Council (WGC) 'Why Invest in Gold?' urged investors not to overly focus on the daily swings of gold prices. The WGC said that gold should be viewed as a strategic asset, which can bring downside protection and portfolio diversification without sacrificing long-term returns. In a traditional portfolio of 60% equities and 40% fixed income, an optimal gold allocation would be five to six percent.

What to Watch

We will monitor a couple of the FOMC voters' speeches and the E-17 October flash PMI on Nov. 4, the BoE and the ECB monetary policy announcements and the U.S. preliminary Q3 GDP on Nov. 7, China's October trade data, the U.S. October unemployment rate, the non-farm payrolls as well as the U.S. core PCE price index on Nov. 8.